Tether (USDT) stablecoin logo.
Cost Photo | Null Photo | Getty Images
In the context of US military actions in Venezuela, locals hurried to convert their Bolivars into a dollar-equivalent digital currency known as USDT. Although the attack might have caught some off guard, the swift adoption of stablecoins was expected.
From the Middle East to Latin America, people are increasingly turning to USDT as a way to safeguard their finances against authoritarian regimes and rampant inflation. With US President Trump potentially looking to intervene further in the regional dynamics between Colombia and Iran, this trend could accelerate.
“Stablecoins represent a more reliable dollar alternative, but people are motivated to use them mainly out of necessity, for self-protection,” noted Mauricio Di Bartolomeo, co-founder of the digital asset lending service Redon. “Wherever there are barriers to free dollar circulation, stablecoins will find their way in.”
He remarked that since 2014, digital currencies from Tether have gained traction in places like Russia and Iran, particularly during periods of political unrest. USDT offers a way for individuals to send and receive funds, shield their assets from local currency devaluation, and purchase goods.
Isn’t it truly stable?
While USDT appears to be a solid alternative to “virtually worthless” currencies like the Iranian rial or Venezuelan bolivar, Di Bartolomeo cautioned that it’s not flawless.
Stablecoins are designed to maintain a value of approximately $1, but they can become unstable when demand spikes.
For instance, following the recent US military action in Venezuela, USDT demand jumped, with some peer-to-peer platforms reporting prices as high as about $1.40.
This price variability underscores the liquidity challenges facing the cryptocurrency sector, which can obstruct the broader acceptance of digital currencies. Nonetheless, it reflects how cryptocurrencies are perceived as a refuge by those enduring severe political and economic hardships, according to Haonan Li, co-founder and CEO of stablecoin infrastructure firm Codex.
“This was a reaction driven by fear and violence,” Li explained. “As faith in the bolivar crumbled, the call for dollars through Tether surged, causing USDT prices to soar by nearly 40% overnight in Venezuela.”
He emphasized that this was not merely speculative trading but a desperate attempt by individuals to escape fiat quickly amid a crisis.
Furthermore, he noted, “The demand surge has created opportunities for arbitrage but, more importantly, it shows how stablecoins can provide essential safety measures in emerging markets when traditional frameworks fail.”
However, this situation temporarily disadvantaged some Venezuelans trying to use digital dollarization options for their savings, forcing them to pay a higher rate for converting Bolivars to USDT. This presents a potential risk associated with stablecoins.
Austin Campbell, CEO of Zero Knowledge Consulting, mentioned that converting large sums of fiat into stablecoins could lead to substantial capital flight, potentially weakening local currencies.
“Essentially, if a government isn’t repressive, and all citizens have the ability to move money freely, it could destabilize the local currency,” commented Campbell, who is also an adjunct professor at NYU.
Still, stablecoin advocates argue that such outcomes aren’t altogether negative. The depreciation of local currencies can exert pressure on governments, creating challenges for them. “This could be more of a strategic advantage than a drawback,” Campbell added.
He concluded by reinforcing that, indeed, the benefits tied to using stablecoins in repressive environments often outweigh the associated risks.
“When authorities resort to seizing everyone’s money, [USDT] remains a viable option,” Campbell remarked.
